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Your W-2 - Employees

The W-2 form can seem complicated at first glance, but it becomes much easier to understand once you break down what each section means and how they relate to your tax refund.

So, what exactly is Form W-2? It is the document the IRS requires your employer to use for reporting your annual wages. It also reports the amounts of federal, state, and other taxes that your employer has withheld from your pay throughout the year. You need this information to prepare your tax return, which is why the IRS mandates that your employer postmark your W-2 by no later than January 31.

But what do all these boxes signify? And how can you confirm their accuracy? We will explain what each box is for and how the totals are calculated so you can be sure your pay and tax information is correct.

Boxes 1–8

  • Box 1: Wages, tips, other compensation
    • This is the total of all your wages, tips, and other compensation for the year, calculated before any taxes or deductions are taken out. Most forms of compensation are taxable, including non-monetary benefits like the personal use of a company car or health insurance premiums for 2% shareholders. However, there are exceptions, such as pre-tax retirement plan contributions, Section 125 health insurance premiums, and commuter benefits, which are deducted from your gross pay before taxes. It is normal for this figure to be different from other wage amounts on your W-2.
    • If the wages in Box 1 are lower than those in Box 3, it may be due to pre-tax benefits that are exempt from federal income tax but not Social Security tax. If you received paid sick or family leave under the Families First Coronavirus Response Act (FFCRA), the wages for this leave will be included here.

 

  • Box 2: Federal income tax withheld
    • This is the total amount of federal income tax withheld from your wages and submitted to the IRS for the year. The amount is based on your total taxable wages and the filing status you indicated on your W-4 form when you were hired.
    • The IRS compares this withheld amount to the total amount of taxes you owe for the year. If you have paid too much, you will receive a refund; if you have paid too little, you will owe taxes.

 

  • Box 3: Social Security wages
    • This figure represents how much of your total wages is subject to Social Security tax. It also includes compensation like pre-tax contributions to 401(k), 403(b) annuity, SIMPLE-IRA, and 457 government retirement plans. This helps fund the retirement, disability, and survivorship benefits that millions of Americans receive annually.
    • The amount in Box 3 should not be higher than $137,700, which is the Social Security Wage Base. This is the maximum amount of wages subject to Social Security tax for 2020. If you have any Social Security tips (Box 7), the combined total of Boxes 3 and 7 should still be under $137,700. Wages from paid sick or family leave under the FFCRA will also be reported here.

 

  • Box 4: Social Security tax withheld
    • Box 4 shows the total amount withheld from an employee’s Social Security wages and tips. Unlike federal income taxes, Social Security taxes are calculated at a flat rate of 6.2%. This means the amount in Box 4 should be equal to the amount in Box 3 multiplied by 6.2% (0.062).
    • Since the maximum amount for Box 3 is $137,700, the amount in Box 4 should not exceed $8,537.40, as $137,700 x 0.062 = $8,537.40.

 

  • Box 5: Medicare wages and tips
    • This may be the largest number on your W-2, but it is not the amount you are paying. It simply represents the portion of your total pay and compensation used to calculate the Medicare taxes you owe. Similar to Social Security wages, this figure includes compensation like pre-tax contributions to 401(k), 403(b) annuity, SIMPLE-IRA, and 457 government retirement plans. However, it does not include pre-tax deductions.
    • Unlike Social Security wages, there is no limit on the amount of wages subject to Medicare tax. This is why the figure in Box 5 may be larger than the amounts in Box 1 or Box 3. Note: If this figure is over $200,000, a lower tax rate is applied to the amount exceeding $200,000. We will cover this in the next box.
    • Medicare is a federal health insurance program for people aged 65 or older, but it is also available to some younger individuals with specific diseases and disabilities.

 

  • Box 6: Medicare tax withheld
    • This is the total amount withheld from your wages for Medicare tax this year. It should equal 1.45% of your taxable wages (Box 5) if those wages are below $200,000. A lower rate of 0.9% is applied to each dollar earned above $200,000. So, generally, multiplying the amount in Box 5 by 1.45% (0.0145) should equal the total in Box 6. However, if you earned over $200,000, here is an example of the calculation:
    • If Box 5 is $205,000, the calculation would be: ($200,000 x 1.45%) + ($5,000 x 0.9%) = $2,900 + $45 = $2,945. Therefore, if Box 5 is $205,000, Box 6 would be $2,945.

 

  • Box 7: Social Security tips
    • Tips are considered taxable income, including both cash tips and those added to debit or credit card charges. If this box is blank, it means you either did not earn or did not report any tips to your employer during the year. This amount is also included in the totals for Boxes 1 and 5. The combined total of Boxes 7 and 3 should not exceed $137,700 for 2020.
    • If you received tips but failed to report them, they are still taxable. You are required to report all your tips to your employer each month using IRS Form 4070 by the 10th of the following month.

 

  • Box 8: Allocated tips
    • These are tips that your employer has allocated to you and are considered taxable income. Not all employers are required to allocate tips to their employees.
    • Allocated tips are not included in the taxable income on Form W-2 and are not part of the totals in Boxes 1, 3, 5, or 7. You must use Form 4137 to calculate taxes on allocated tips.

Boxes 9–14

  • Box 9: This box is currently not used by the IRS and will therefore be empty.

 

  • Box 10: Dependent care benefits
    • If your employer has a plan that allows for pre-tax payroll deductions for daycare, the amount withheld from your paycheck is reported here.
    • If the amount is below $5,000, it is considered non-taxable. Any benefits over the first $5,000 are taxable and will be included in Boxes 1, 3, and 5.

 

  • Box 11: Nonqualified plans
    • This box reports distributions you received from a nonqualified deferred compensation (NQDC) plan. An NQDC plan allows you to earn wages, bonuses, or other compensation in one year but receive those earnings in a later year, which defers the income tax until the year you receive the payment.

 

  • Box 12: Codes
    • Here you may see one or more codes along with associated dollar amounts. These codes and values can affect your taxable wages. For example, if you chose to contribute to a 401(k) retirement plan, you might see code D with the amount you contributed. You can find a complete list of what all the codes mean in our “Box 12 codes” section.

 

  • Box 13: Checkboxes
    • These checkboxes are used to indicate the following:
      • If you are a statutory employee (meaning your earnings are subject to Social Security and Medicare taxes but not federal income tax withholding).
      • If you participated in your employer’s retirement plan during the year.
      • If you received sick pay through your employer’s third-party insurance policy.
    • Using our previous example, if you saw code D in Box 12, the “Retirement plan” box would also be checked.

 

  • Box 14: Other
    • This box is for any remaining information that does not fit into the other boxes. Examples include union dues, state disability insurance taxes withheld, vehicle lease payments, health insurance premiums, 2% shareholder health insurance premiums, clergy housing allowance, and any other non-taxable income.

Boxes 15–20

  • Box 15: State | Employer’s state ID number
    • This is your employer’s state tax identification number. If you work in a state with no reporting requirement, this box will be blank, as will boxes 16 and 17.

 

  • Box 16: State wages, tips, etc.
    • This shows the portion of your total wages that is subject to state income tax. If you work in a state with no state income tax, Box 16 should be blank. It is not an error if the amount in Box 16 is different from Box 1. Some wages may be exempt from federal income tax but not from state income tax.

 

  • Box 17: State income tax
    • If you have state-taxable wages in Box 16, then Box 17 will show the amount your employer withheld to pay these taxes.

 

  • Box 18: Local wages, tips, etc.
    • If your wages are subject to local income taxes, such as county or city taxes, you will see those wages in Box 18. This amount may differ from the amounts in Boxes 1 and 16.

 

  • Box 19: Local income tax
    • If you have locally-taxed wages in Box 18, then Box 19 will show the amount your employer withheld to pay these taxes.

 

  • Box 20: Locality name
    • This is the abbreviation for the county or city to which the local taxes apply.

 

That covers what each box on your W-2 represents and how the numbers are calculated. Did you know you can also view your W-2 in the Beyond app? If your employer has already made it available, there’s no need to wait for it to arrive in the mail. Simply log into Beyond and check your earnings!

Need Help?

If you still have any questions, please don’t hesitate to reach out. Our team will be happy to provide answers and assist you in any way we can.

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